Lars Windhorst tries to plot future beyond H2O crisis
The ever optimistic German financier is under pressure to buy back more than €1bn of securities from asset manager
As the world retreated into lockdown, German financier Lars Windhorst criss-crossed the globe in a private jet on a mission to raise billions.
The 44-year-old needs to make good on a promise to buy back more than €1bn of bonds from H2O Asset Management, a once-feted European fund manager whose backing helped Windhorst assemble an eclectic collection of businesses that includes Italian lingerie maker La Perla and German football club Hertha Berlin.
After the extraordinary scale of H2O’s bets on the financier threatened to capsize the asset manager in 2019, Windhorst last year vowed to buy back the illiquid debt at the heart of a crisis which has drawn regulatory scrutiny. But more than 12 months later, H2O’s clients, whose money is tied up in the troublesome securities, are still waiting.
The challenge is one of the toughest yet for Windhorst. Hailed as a precocious entrepreneur by then-German chancellor Helmut Kohl when he burst on to the business world in the mid-nineties, his chequered career has included personal bankruptcy.
An initial plan to use an investment vehicle called Evergreen to buy back half the bonds last year and the rest by this June fell apart. Then last August French regulators ordered H2O to suspend several funds because of uncertainties over the valuation of the bonds.
The London-based asset manager has significantly written down the value of the securities, which in some cases Windhorst has agreed to buy back several years ahead of their maturity, and shifted them into so-called side pockets that are closed to investor redemptions.
A criminal investigation launched by the Berlin prosecutor’s office into Windhorst is a further complication. Authorities are probing whether Evergreen violated German law by allegedly engaging in banking activities without the necessary licences. Windhorst denies any wrongdoing and said he has offered his assistance to authorities.
Armed with infectious optimism, an insatiable thirst for dealmaking and an uncanny ability to escape from near ruinous predicaments, Windhorst insists that a large chunk of the debt will be bought back this year.
“Tennor [Windhorst’s main investment company] expects to pay down a major part of the H2O debt before the end of the year,” Windhorst told the Financial Times.
Following the collapse of the Evergreen plan, Windhorst bought himself some breathing space until early next year when Tennor in May announced a restructuring of its debts with “major creditors”, the biggest of which is H2O.
Under the agreement, Tennor Group’s debt will be consolidated into a new €1.45bn bond, carrying a 4.5 per cent interest rate, which is due to be repaid in early 2022. H2O said that the agreement provided a “more stable platform” to liquidate the securities in the funds’ side pockets.
Bet on Hertha Berlin
Windhorst, who operates from a swanky office in London’s Mayfair and a new base in the pricey “Palme” office building in Zurich once occupied by Russian oligarch Viktor Vekselberg, says he tires of the scrutiny that his relationship with H2O has generated.
“It’s normal in business that things are difficult. It’s not a problem for me, I deal with it,” said Windhorst. “I get beaten up for this and we need to move on here and make money and do business.”
Obtaining a clear view of Tennor’s finances is difficult. La Perla, one of its highest-profile investments, posted a €136m loss last year. However, several subsidiaries’ accounts have not been signed off, with filings citing delays in finalising Tennor’s own audited accounts that were due to be filed by the end of March.
According to a 2019 provisional balance sheet filing, the latest that is publicly available, Tennor Holdings had €2.6bn in liabilities at the end of that year.
Windhorst has long lent on debt and short-term funding deals, including repurchase agreements, to finance his businesses. It is a pattern he says he wants to break.
The shadow cast by H2O has done little to dull Windhorst’s ambitions, however. The financier is on track to complete his €374m investment in Hertha Berlin, a German football club with a long history but largely empty trophy cabinet. The agreement to acquire a majority stake was announced just a week after the H2O scandal erupted in 2019.
In June, he took to Twitter to scotch rumours he had fallen behind on payments to the club. “Hello to all doubters who don’t believe this is my account,” Windhorst declared. “Everything is on schedule,” Björn Bäring, Hertha Berlin’s head of finance, told the FT. A final €30m instalment is due this month.
Since Windhorst took control, Hertha Berlin broke its transfer record for a player but lost a manager, the legendary German striker Jürgen Klinsmann, after just 10 weeks in February 2020.
Earlier this year a creditor obtained a judgment in a Dutch court to auction off the investment vehicle Windhorst used to buy his Hertha Berlin stake. The suit, which relates to a short-term loan, is “generally settled”, according to a lawyer for the creditor.
The investment in Hertha Berlin is one of several demands on Windhorst even as the H2O bill remains outstanding.
Shortly before H2O described the financier’s efforts in August 2020 to buy back the bonds under the Evergreen plan as “very partial”, Tennor committed €100m to medical robotics start-up AvateraMedical.
It also announced a major stake in a joint venture with New York-based luxury condo developer Extell to build what is intended to become the tallest Manhattan skyscraper. Despite sluggish progress following planning objections, Windhorst is confident that the project will be “perfectly timed” for an eventual recovery in Manhattan’s luxury residential market.
Windhorst has also expanded his shipping business. Tennor first acquired ailing shipbuilder Flensburger Schiffbau-Gesellschaft in 2019 from Norwegian businessman Kristian Siem. FSG late last year laid the keel on the first ship since it relaunched its operations after insolvency proceedings. The customer: a company owned by Windhorst.
Then last month, FSG snapped up luxury yacht shipyard Nobiskrug in Germany for an undisclosed price. Previously owned by French billionaire Iskander Safa’s Privinvest, Nobiskrug was placed into insolvency in April.
“Both shipyards combined have secured orders in excess of €1bn”, said Windhorst.
If a reliance on debt has been a feature of his business career, so have legal battles.
Earlier this year Siem filed suits at London’s High Court. Meanwhile, in June a judge in Amsterdam ordered Windhorst to “disclose his assets and to provide security” in relation to a long-running dispute over his acquisition of a 50 per cent stake worth €169m in international show jumping event Global Champions Tour from US billionaire Frank McCourt.
Windhorst is adamant that the public filings paint a misleading picture. All the suits bar one filed by entities linked to former Tennor advisory board member Manfredi Lefebvre d’Ovidio, which have made claims worth more than €120m, have been amicably settled, he says. Representatives for Siem, Lefebvre d’Ovidio and McCourt declined to comment.
Paying off
There are signs that the businessman’s frantic flight schedule is beginning to pay off. Windhorst in May sold Berlin-based ad-tech company Fyber, which he owned 90 per cent of, to Nasdaq-listed Digital Turbine at a $600m valuation. The transaction was settled for $150m in cash plus shares in Digital Turbine.
Meanwhile, Windhorst says Tennor has agreed to sell a minority stake in Avatera for €600m. A start-up in the fast-growing field of medical robotics, Avatera has long been considered a potential crown in Tennor’s investment portfolio.
H2O disclosed in a corporate filing that it was unable to dispose of a 12.5 per cent Avatera stake held by one its funds in an “orderly fashion” earlier this year, with a spokesperson saying the asset manager’s priority was to sell at the best price.
Although Avatera is likely to require considerable investments to realise its potential, Windhorst remains bullish. “Avatera has the potential to be a €10bn to €20bn business,” he said.
If that proves the case, it would mark a remarkable turnround for the financier. But four years since H2O stepped in as Windhorst’s saviour, backing his empire as he fought off aggressive creditors, including a Belize-based company linked to a former Russian energy minister, it is the asset manager’s clients who remain in need of rescuing.
Gerard Maurin, an investor, who is spearheading efforts by some to claim damages from H2O, says that communication from the asset manager on the repayment schedule has been vague.
“It motivates us even more to continue our action,” he said. “It’s not normal to have to wait [to redeem your investment].”